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Ashok Leyland will spend over Rs 400 crore on its LCV business in two years

After parting ways with Nissan last year, Ashok Leyland now wants to race ahead of peers like Mahindra & Mahindra and Tata Motors.

The light and intermediate vehicles category has been a laggard among its businesses. The automaker has set a target to increase its market share to 30 per cent from 22 per cent today in the medium term.

In November, Ashok Leyland acquired the shares of its joint venture partner Nissan in three companies that were floated in 2007 to manufacture and sell light commercial vehicles (LCV) in India. While Ashok Leyland sold three brands (Dost, Mitr and Partner), Nissan marketed the Evalia.

With the partnership ending, production of all vehicles except the Dost has been stopped and new variants are being launched in their place. To rebuild its product portfolio, Ashok Leyland will launch one new vehicle every three months over the next two years, says Nitin Seth, president (LCV), Ashok Leyland.

Over the past two months, two vehicles have been launched and a school bus under its Mitr brand is in the offing. “With the launch of Partner (LCV) and Guru (ICV), we have moved closer to our vision of emerging as one of the top 10 truck makers globally,” says Vinod K Dasari, managing director, Ashok Leyland.

Even though the joint venture had been making losses, Ashok Leyland is keen on the LCV business because it believes diversification will provide a cushion against the cyclical nature of the commercial vehicle business.

“We continue to bet on this business, which contributes around 26 per cent (in volumes) for us,” says Seth.

No longer bound by the terms of the joint venture, Ashok Leyland can export its vehicles. Understandably, the company is upbeat. “The sky is the limit and we will look at launching products outside India,” says Seth. While Ashok Leyland’s products will compete with those made by Nissan in the global market, in the domestic market, the Japanese company cannot launch its vehicles for a while.

An investment of Rs 400 crore has been lined up for the LCV business over the next two years. As it shifts its equipment from Nissan’s Oragadam facility to its own plant in Hosur, Ashok Leyland is hopeful demand for its products will continue to grow as it still retains the intellectual property rights for the vehicles produced jointly with Nissan.

Seth expects the company’s LCV business to touch around Rs 6,000 crore in three to four years, from the current around Rs 2,000 crore. Currently, with about 30,000 units, Ashok Leyland is the third largest player in the LCV space, after Mahindra and Tata, but it aspires to be number two with sales of about 50,000 units in 18 months. Part of these volumes is expected to come from exports.

Meanwhile, there are equally ambitious plans for the ICV business. Anuj Kathuria, president (global trucks), Ashok Leyland, says the company hopes to increase the market share in the ICV segment to 30 per cent with the launch of the Guru.

“Guru will offer the highest payload of 13 tonne GVW (gross vehicle weight), fuel efficiency and sleeping provision in the cabin. It comes in both BS IV and BS III variants,” says Kathuria. ICV was one of the segments that grew when the market overall was feeling the heat. The share of ICVs has been growing steadily and it accounts for 40-45 per cent of total commercial vehicle sales for the industry, up from 30-35 per cent two years ago.

Six to seven years back, Ashok Leyland’s market share in the ICV segment was 8-9 per cent, but last year it jumped to 15 per cent. This year, with improved focus and coverage, it is hopeful of capturing 20 per cent share.

The company says the Guru will help it achieve 30 per cent market share by 2017-18. “It will be one of the key growth drivers to achieve its long time vision of being one of the top 10 global truck companies in the world. Currently, Ashok Leyland is in the 14th position,” says Kathuria.

Analysts are optimistic about Ashok Leyland meeting its target as its products come equipped with the latest technology and meet future emission and regulation norms. However, such future-ready products come with a cost and Ashok Leyland’s vehicles are priced at a premium.

Seth says the first three months of this year could be difficult, but after April, when BS IV becomes mandatory, prices will even out as everyone will have to factor in the additional cost of meeting the new emission guidelines.